The kindling underneath the cotton market caught a few sparks this week as the nearby May contract climbed back to near 93 cents. Yet, the struggle of the new crop December contract to climb to 80 cents continues, as new crop advanced only one cent for every three in old crop.
This emphasizes the market’s immediate need for quality, particularly machine-picked quality cotton.
The week began with the USDA March Supply Demand report. Changes made by USDA were generally expected, but had not been fully accounted for in the market. Thus, the report provided psychological support to the bulls’ hope. We did see USDA finally bite the bullet and increase exports 200,000 bales, thus reducing U.S. carryover to 2.8 million bales. If the market fails to climb to 94-96 cents, then exports will move even higher.
In a later USDA report, export sales and shipments also added a bit of momentum to the market’s price rise. Sales were larger than expected, and shipments remained strong. Look for the market to continue its bullish attitude, but one should also expect very volatile price movement.
As earlier referenced, an increasing number of mills are looking for quality machine-picked cotton. Why? The reason is that today’s new textile machinery was specifically manufactured for such cotton, for ring spinning. Too, this is also supported by the fact that a good bit of the export cancellations have been for shorter staple cotton that had been destined for use on the older and coarser open-end spinning system. The demand for denim remains strong, if and only if, it was produced on the ring spinning system. Denim produced on the open-end system pales in both quality and consumer preference with respect to ring-spun denim.
Net export sales for the most recent week totaled 135,200 RB, including 60,500 RB of Upland for current year shipment (by 7-31-2014), 8,300 RB of Pima and another 120,400 RB of Upland for 2014-15 delivery. The weekly average price for these sales was 89.36 cents, basis the May contract. Additionally – and underlying the widespread demand for quality and machine harvested – some 20 countries bought U.S. cotton at this price.
Export shipments totaled 264,200 RB of Upland and 10,300 bales of Pima. While shipments are on pace to reach the USDA forecast for the year, weekly sales must average nearly 104,000 RB to reach the USDA projection.
Looking at the 2014 crop and the 2014-15 marketing year (Aug 1, 2014-July 31, 2015), I may be becoming a bit wishy-washy on you. If I am, then it is because I see a glimmer of hope for potentially higher prices than that I have been discussing for months.
I have felt for some time that 80-83 cents, basis December, was the most for which we could hope. Certainly, I continue to feel that is the most likely case. Yet, a few weather problems could drop world stocks as much as ten million bales, dramatically increasing the price for quality cotton, but only for quality cotton. There is a vast supply of average-to-questionable quality cotton outside the U.S.
While quality will always be in demand, another price charge will do overreaching and long term damage to both U.S. and world production. The five-year old quiet takeover of market share by chemical fibers has brought cotton demand down to near its knees. This short term trend is promising to become long term, and if successful, will be devastating to the U.S. and world cotton industry.
We are at the door of disaster, and as such, the cotton industry must begin to plan for immediate drastic defensive and offensive action. Slamming this idea will do one any good. Anyway, they would be 50 years too late for that. That line already circumvents the globe. More importantly, it would only serve to expand the ostrich gene pool. Unfortunately, this new generation of U.S. and world consumers has little knowledge of why cotton was king, and it is going to require more effort on our part than ever put forth to explain why.